Omaxe likely to announce $5-bn deal: Sources

CNBC-TV18 was informed by sources that Omaxe is likely to announce a $5 bn deal in the next couple of days. Deal may be for a 10,000 acre project in West India in a JV with an int’l player. The project is expected to yield revenues of $20 bn over 10 years. The money raised for this project will be in the debt-equity ratio of 1:3.

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Omaxe likely to announce $5-bn deal: Sources

CNBC-TV18 was informed by sources that Omaxe is likely to announce a $5 bn deal in the next couple of days. Deal may be for a 10,000 acre project in West India in a JV with an int’l player. The project is expected to yield revenues of $20 bn over 10 years. The money raised for this project will be in the debt-equity ratio of 1:3.

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Omaxe has pledged 14.5% stake to Indiabulls Financials. This has been done with a call option that can actually be exercised with the one-month’s notice, Rahul Arora, CNBC-TV18 analyst reported. The company has paid about 1.5% on the Rs 300 crore that it has pledged for 14.4%, which implies about 4.5 crore for this call option can be exercised, he added.

Arora informed that the company has also said that they will pay back this Rs 300 crore within outer limit of three years. This means it could pay it back anytime between now and the next three years. Arora said, “Theoretically, this works out to about Rs 120 per share as to what this pledged amount has done. It is nowhere close to what the current market price is doing because if it were pledged from the current market price, it would have been done at about Rs 1,070 crore.”

Arora explored the rationale behind this Rs 300 crore amount.

He informed that Omaxe is about to announce USD 5 billion worth project over the next couple of days. that is, they are actually going to sign. This would be a project that will be on a land area of 10,000 acres in the Western part of India, he added. And this is the big news for which the pledge has been taken.

Rahul Arora, quoting sources, said this Rs 300 crore versus about USD 5 million was actually an immediate emergency amount that Omaxe needed to finalise the signing of this deal. The deal would be announced in the next couple of days.

About the project:

Arora informed that this project will be developed in joint venture with a Western-India based government, which will hold 10%. Omaxe will hold 40% and the international joint venture partner will hold close to about 50%. A reasonable amount of land has already been acquired for the same and the project is estimated to have revenues of about USD 20 billion over the next ten years, Arora estimated.

However, all this is not going to come into Omaxe’s book because it is a three-way participation and Omaxe is only a 40% holder in the deal, he added. Omaxe’s contribution to this over a period of five years initially could be about Rs 2,500 crore or about USD 630 million, Arora said.

He clarified that Omaxe will not use any of the Rs 550 crore that they had raised via the IPO to fund this. This would be raised through the debt-equity ratio of 1:3. This, Arora considers as a very big news – that Omaxe is actually going to look at the deal over the next couple of days and that the pledge was taken primarily for the deal.

Arora reminded that the promoters have a lock-in period of about three years, as was stated in the RHP when they came out with their IPO. So they cannot technically sell or allow a private placement sell their shares in the public market because of the lock-in period and the current promoter holding in the company is 90% for the float of about 10%, he revealed.

The CNBC-TV18 analyst expects a very big announcement from Omaxe in the next couple of days, with the sizeable development over the next five years and a significant revenue generation potential as well. He pointed out that Omaxe’s stock has also started reacting. He acknowledged that such reaction may not be primarily on the news, but the market probably has a sense of this news that will come out over the next 48 or 72 hours, he concluded.

Disclaimer: This is source-based information and has not been provided to the stock exchanges.

Omaxe stock price

On March 31, 2015, Omaxe closed at Rs 135.20, down Rs 1.05, or 0.77 percent. The 52-week high of the share was Rs 152.30 and the 52-week low was Rs 120.05.

The company's trailing 12-month (TTM) EPS was at Rs 2.57 per share as per the quarter ended December 2014. The stock's price-to-earnings (P/E) ratio was 52.61. The latest book value of the company is Rs 89.28 per share. At current value, the price-to-book value of the company is 1.51.